Oh, Canada: Surprise loser in US-EU trade deal

A surprising casualty is emerging in the trade debate between the United States and European Union: Canada.

Almost overnight, the pact struck between Ottawa and Brussels in September has been delayed to early 2016. There is little chance the deal, which covers nearly €80 million of annual trade and was four years in the making, will take effect until 2017.

What went wrong?

“ISDS” became a buzzword in current negotiations between the US and EU. Wrangling over the Investor State Dispute Settlement process — arbitrary courts of lawyers from both sides that help settle rows — now threatens to upend Canada’s own deal.

“I’m worried about the political opposition” in Europe, said Jayson Myers, president and chief executive of Canadian Manufacturers and Exporters, a trade association representing about 10,000 companies. With CETA, “important market entry costs and regulatory restrictions will be dropped, which have held many Canadian companies back from developing their business on the other side of the Atlantic, and EU enterprises vice-versa.”

When Brussels and Ottawa started negotiating more than five years ago, most politicians did not know what ISDS meant, and hardly anyone but a few legal specialists paid attention to this section of the agreement.

That changed when Brussels started negotiating with the US in July 2013. A possible free-trade agreement between regions that exchange about €826 billion in goods and services a year, turned ISDS into a hotly debated issue.

“Everyone is aware of this mechanism now, and many Parliamentarians do not want it as it is right now,” said Rory Macrae, a partner at the public affairs agency g+, which specializes in trade issues.

The European Parliament is currently debating a draft resolution demanding major changes to the US agreement, formally known as the Transatlantic Trade and Investment Partnership.

Many members want to completely exclude ISDS from the American treaty, whereas some plead for major changes such as a court mechanism for dispute settlements, with the EU and US appointing independent judges, limited lawsuit possibilities and an appeal procedure.

Cecilia Malmström, the European commissioner for trade, talked last week about “substantially reforming” that section of the US deal.

Commission spokesman Daniel Rosario, however, remains confident that the Canadian pact, which is currently in the final phase of the so-called ‘legal scrubbing’, will be done before the summer. Even so, translating the 1,600-page document into the 24 EU official languages could take another six months, before it can go to the Parliament.

Nevertheless, there are many members of parliament now posing one critical question: “Why should we ratify the Canadian trade pact, which includes an ‘outdated’ version of ISDS that no one wants to accept in the American deal?”

“It is clear to the Commission that if they put an agreement on the table that does not fulfill our demands on ISDS, then we will let it fail,” said Bernd Lange, chair of the Parliament’s committee on international trade and a member of the Social Democrats party. The Canadian agreement “is a good agreement, but the part about ISDS needs to be changed.”Lange’s words are far more than an empty threat: In February, he co-authored a critical report on ISDS together with several European Social Democrat ministers and should be able to expect large parts of the Social Democrats, the second biggest group in the parliament, to back his position. Other groups like the Greens and the Left are also opposing ISDS, and Parliamentarians from other fractions have issued criticism as well.

Commission wants last-minute-changes

Negotiators at the Commission know the current Canadian pact will be a tough sell that probably won’t make it through the legislative process. That’s why Malmström is now trying to use the ‘legal scrubbing’ to modify the agreement’s articles about ISDS at the last minute. Her spokesman, Daniel Rosario, expressed hope that some ‘fine tuning’ around investment dispute settlements “may be feasible.”

But it is a narrow path.

Legal scrubbing is intended to remove language ambiguity, typos and other inconsistencies. “It should not be rewriting, but cleaning only,” said Bernard O’Connor, an experienced trade lawyer in Brussels.

The only way to bring such modifications into the agreement would be if Canada explicitly signs off on it. Otherwise, the other side could demand to renegotiate further issues as well, which risks that “the whole agreement will be reopened,” O’Connor said.

That risk is real. Special interest groups are trying to get involved in the fine-tuning process. Bavarian beer brewers, for example, now want to add changes to improve the protection of their trademark.

Canada’s Prime Minister Stephen Harper has been waiting for some time. A final conclusion on the deal was announced in October 2013, but little has happened since.

Last September, Harper made a second declaration about the definite end of negotiations with the former Commission President José Manuel Barroso, believing that things would finally speed up.

Susanne Connolly from the Mission of Canada to the EU, said: “The Government of Canada is pleased…negotiations have concluded. We reached a balanced outcome and one that contains the most progressive provisions on ISDS ever negotiated…Moving towards implementation of CETA as soon as possible is a priority.”

As things stand now, the make-or-break moment could come next spring. The Canadian agreement will need to pass the European Parliament and most likely also the 28 national parliaments.

Until then, many obstacles lay ahead.

Myers, head of the Canadian Manufacturers and Exporters, predicted: “If Europe and Canada cannot conclude a deal, then there is very little chance that Europe and the US can either.”

Authors:

We agree with Bernd Lange, CETA is a “good agreement”. Canada is already the 5th largest market for European spirit drinks, generating €285 million for the European economy each year, and the CETA deal will open the opportunity for increasing our sales there. It would also mean greater access to quality European spirits for Canadian consumers. We hope solution to ISDS will be found quickly because increasing trade outside Europe is key for jobs and growth back home.

Posted on 4/29/15 | 9:19 AM CET

Andre

ISDS is just an enforcement component on top of the substantive agreement. No side could argue that we can’t do without ISDS which is mutually. Both governments trust their respective partner to abide to the agreement. They don’t need an ISDS for their domestic legal-industrial complex.

In Canada we find it very hopeful that the European Parliament may vote down CETA. Our experience with Chapter 11 – the ISDS provision in NAFTA – tells us that investor-state should be removed from all so-called “free trade” agreements.

Now we know the real reason for this obituary on CETA. Make sure the deal between the EU and the US goes through. You can bet dollars to donunts that both the Americans and the Europeans will avoid openly discussing ISDS clauses. It was German opposition to ISDS clauses that killed the Canadian EU deal. ISDS give corporations the right to sue governments before a special tribunal if the company considers its operations have been put at a disadvantage by discriminatory regulations by a host government.

Posted on 4/29/15 | 4:43 PM CET

dave

CETA and any other trade agreement with Canada should be blocked and I am posting this everywhere I can because Ontario Canada is absolutely a terrible place to do business. As a US based company doing business with Canada under our NAFTA trade agreement, I have found Canada is a terrible country to do business with, particularly the largest province Ontario.
We have found they do not enforce their laws, we have experience with businesses in Ontario Canada receiving stolen goods, selling stolen goods across border into US. Local police had been advised of this business activity by other businesses in Ontario area, but did nothing about it. So this Canadian criminal enterprise got emboldened by lack of law enforcement and expanded their operation into including wire fraud. Report fraud to RCMP, no response. Report fraud to Canadian Antifraud Division, no response (far as we are concerned Canada’s “anti-fraud” agencies are themselves a fraud, doing absolutely nothing at all, don’t even respond to complaints and reports of fraud, total joke.) Report theft and fraud to local police, they say to contact the regional anti-fraud. Contact regional anti-fraud, they say contact local police. Tell them local police say to contact them, they say the issue is a contract issue and to pursue in court. How absurd, of course there is a contract, the contract was made under false pretenses which is the basis of the fraud. Contact Ontario provincial government, office of Kathleen Wynne, no response. Sent certified mail to follow up, still no response.
Canadian authorities in our experience are dumb, ignorant, lazy, pro Canada-meaning they would rather support and enable Canadian criminal activity than enforce laws for outsiders. In general we find Canada is ripe for widespread fraudulent activity. We finally got one reply from local anti-fraud division after threatening to sue Canada under NAFTA trade agreement, they said it is at least 6 months before they can begin their investigation into fraud because they are so backed up with investigations. So it seems fraud is rampant in Canada and the laws most definitely are not being enforced.
DO NOT DO BUSINESS WITH CANADA IF YOU ARE OUTSIDE THE COUNTRY. EVEN OUR CANADIAN ATTORNEY SAYS WHITE COLLAR CRIME LIKE FRAUD AND WIRE FRAUD ARE VERY UNLIKELY TO BE HANDLED. ONTARIO CANADA IS PARTICULARLY BAD. CANADA IS TERRIBLE TO DO BUSINESS WITH, FIND ANOTHER RELIABLE COUNTRY. SEEMS LIKE CANADA IS POISED TO BE THE NIGERIA OR CHINA FRAUD EQUIVALENT OF NORTH AMERICA. HORRIBLE, HORRIBLE GOVERNMENT ENABLING AND ENCOURAGING FRAUDULENT ACTIVITY WITH LITTLE RECOURSE FOR OUT OF COUNTRY BUSINESSES.